Answer to Question #269572 in Management for Sheral Kumar

Question

A large electronics manufacturing firm in Singapore must decide whether to make a component part in-house or to contract it out to an independent provider. Manufacturing the part entails non-recoverable investment in specialized assets. The most capable and efficient providers are located in nations with currencies that many foreign analysts anticipate to appreciate significantly over the next decade. What are the merits and demerits of: (i) manufacturing the component in-house, and (ii) contracting manufacturing to an independent supplier? Which option would you recommend? Why? 

Answer 1

i.

Merits: Agility and ability to respond to market trends more quickly, the origination would enjoy flexible operations based on market trends; they can reduce or increase production anytime.

Demerits: High cost of management: manufacturing –in the house would require the organization to organize for production and other management operations which may involve expanding machinery; this is costly and may affect financial operations in the company

ii.

Merits: Quality products and easy reduction in management operations: it is easy to control quality manufacturing of the product through contracts, the origination can agree with contractors the quality standards, they can also avoid management issues associated with in-hose manufacturing

Demerits: High costs and long-term return on investment: the organization would incur a lot of costs hiring a contracting company to manufacture the product; also, one decade of return on investment is long and can affect a company’s financial performance under critical situations

I would recommend independent outsourcing suppliers because the organization would be free from high management, low cost of labor, and enjoy efficient and competent services from the suppliers. The foreign suppliers are said to be competent and efficient in manufacturing the product, which makes it the best option for the company to consider to get quality products and avoid high costs of in-house manufacturing and other associated issues.